Income-tax Officer, V. Kandlika Nagari Sahakari Patsanstha Maryadit, Raigad

ITA 900/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2805 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 02-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Business income; Source of fund; Bad and doubtful debts
• Section: 143(3); 63; 12; 2; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 900 /PN/201 4 / ASSESSMENT YEAR : 2010 - 11 THE INCOME TAX OFFICER, WARD 1, PANVEL . / APPELLANT VS. M/S. KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT, GROUND FLOOR, VARUN APARTMENT, NEAR BHATE VACHANALAYA , SONAR ALI, ROHA, DIST. RAIGAD 402109 . / RESPONDENT DIST. RAIGAD 402109 . / RESPONDENT PAN: AAAJK0548F . / CO NO.3 4 /PN/2015 / ASSESSMENT YEAR : 20 1 0 - 11 M/S. KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT, GROUND FLOOR, VARUN APARTMENT, NEAR BHATE VACHANALAYA, SONAR ALI, ROHA, DIST. RAIGAD 402109 / CROSS OBJECT OR PAN: AAAJK0548F VS. THE INCOME TAX OFFICER, WARD 1, PANVEL . / RESPONDENT 2 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. . / ITA NO. 898 /PN/201 4 / ASSESSMENT YEAR : 2010 - 11 THE INCOME TAX OFFICER, WARD 1, PANVEL . / APPELLANT VS. M/S. K AMAL MAHILA NAGARI SAHAKARI PAT PEDHI MARYADIT, GROUND FLOOR, MARUTI APARTMENT, TILAK ROAD, PANVEL 410206 DIST. RAIGAD . / RESPONDENT PAN: AAA TK8008L . / CO NO.3 2 /PN/2015 / ASSESSMENT YEAR : 20 1 0 - 11 M/S. KAMAL MAHILA NAGARI SAHAKARI PATPEDHI MARYADIT, PATPEDHI MARYADIT, GROUND FLOOR, MARUTI APARTMENT, TILAK ROAD, PANVEL 410206 DIST. RAIGAD / CROSS OBJECT OR PAN: AAATK8008L VS. THE INCOME TAX OFFICER, WARD 1, PANVEL . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK DEPARTMENT BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 05 . 0 1 .201 6 / DATE OF PRONOUNCEMENT: 29 . 0 1 .201 6 3 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. / ORDER PER SUSHMA CHOWLA, JM : BOTH THE APPEALS RELATING TO DIFFERENT ASSESSEES FILED BY THE REVENUE ARE AGAINST SEPARATE ORDER S OF CIT(A) - I , THANE , BOTH DATED 2 1 . 0 1 .20 14 RELATING TO ASSESSMENT YEAR 2010 - 11 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . THE RESPECTIVE ASSESSEES HAVE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEALS FILED BY THE REVENUE . 2. BOTH THE APPEALS FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY DIFFERENT ASSESSEES WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO THE FACTS AND ISSUES IN ITA NO.900/PN/ 2014 AND CO NO.34/PN/2015 TO ADJUDICATE THE ISSUES. ADJUDICATE THE ISSUES. 3. THE REVENUE IN ITA NO.900/PN/2014 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ID. CIT( A ) - I , THANE HAS ERRED IN DIRECTING TO ALLOW DEDUCTION U/S 80P ( 2) ( A)(I) ON THE INTEREST INCOME OF RS.37,16,147/ - EARNED ON THE INVESTMENTS/DEPOSITS WITH OTHER BANKS, OVERLOOKING THE FACT THAT THE INTEREST INCOME HAS NO DIRECT NEXUS WITH THE ASSESSEE SOCIETY'S NORMAL COURSE OF BUSINESS OF PROVID ING CREDIT FACILITIES TO IT'S MEMBERS NOR IS EARNED OUT OF INVESTMENT WITH OTHER CO - OPERATIVE SOCIETIES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ID. CIT(A) - I, THANE HAS ERRED IN DELETING THE ADDITION OF RS.25,786/ - MADE ON ACCOUNT OF PROFIT FROM OTHER ACTIVITIES AND SERVICES, OVERLOOKING THE FACT THAT THE RECEIPTS HAVE NO DIRECT NEXUS WITH THE ASSESSEE SOCIETY'S NORMAL COURSE OF BUSINESS OF PROVIDING CREDIT FACILITIES TO IT'S MEMBERS. 3. THE APPELLANT PRAYS THE ORDER OF THE LD. CIT(A) - I, THANE, MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUND/GROUNDS, WHICH MAY BE NECESSARY. 4 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. 4. THE ASSESSEE IN CO NO.34/PN/2015 HAS RAISED THE FOLLOWING CROSS OB JECTIONS: - 1. THE ASSESSEE SUBMITS THAT ASSUMING WITHOUT ADMITTING THAT THE INTEREST INCOME OF RS. 37,16,147/ - IS NOT ENTITLED FOR DEDUCTION U/S 80P, IN THAT EVENT, THE ENTIRE INTEREST INCOME OF RS. 37,16,147/ - SHOULD NOT BE TAXED AS AN INCOME OF THE ASSESSEE AND ONLY THE NET INCOME AFTER DEDUCTING THE PROPORTIONATE EXPENDITURE INCURRED TO EARN THE SAID INTEREST INCOME SHOULD BE TAXED AS AN INCOME OF THE ASSESSEE. 2 . THE ASSESSEE SUBMITS THAT IT HAS INCURRED EXPENDITURE TO EARN THE INTEREST INCOME OF RS. 37,16,147/ - AND THEREFORE, ONLY THE NET INTEREST INCOME AFTER REDUCING THE PROPORTIONATE EXPENDITURE CAN BE TAXED AS AN INCOME OF THE ASSESSEE AND NOT THE GROSS INTEREST INCOME OF RS. 37,16,147/ - . 3 . THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE CROSS OBJECTIONS. 5. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL CROSS OBJECTION , WHICH READS AS UNDER: - 1. THE ASSESSEE SOCIETY SUBMITS THAT ASSUMING WITHOUT ADMITTING THAT THE I NTEREST RECEIVED BY IT OF RS.37,16,147/ - IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I), IN THAT EVENT, THE INTEREST RECEIVED BY IT FROM CO - OPERATIVE 80P(2)(A)(I), IN THAT EVENT, THE INTEREST RECEIVED BY IT FROM CO - OPERATIVE BANKS MAY BE GRANTED DEDUCTION U/S.80P(2)(D) OF THE ACT. 6. FIRST, WE TAKE UP THE APPEAL FILED BY THE REVENUE, UNDER WHICH THE ISSUE ARISING IS IN RESPECT OF DEDUCTION CLAIMED UNDER SECTION 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME OF RS.37,16,147/ - EARNED ON INVESTMENT / DEPOSITS WITH OTHER BANKS. 7. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS A CREDIT CO - OPERATIVE SOCIETY AND THE BANKING REGULATIONS ACT, WERE NOT APPLICABLE TO THE ASSESSEE. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED RETURN OF INCOME AT GROSS TOTAL INCOME OF RS. 19,13,150/ - AND AFTER CLAIMING THE DEDUCTION UNDER SECTION 80P(2) OF THE ACT, THE TOTAL INCOME WAS DECLARED AT RS.NIL. THE SOURCES OF INCOME EARNED BY THE ASSESSEE SOCIETY WERE INTEREST ON LOAN GIVEN TO MEMBERS AS WELL AS INTEREST ON INVESTMENT AND OTHER RECEIPTS FROM DIFFERENT 5 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. SERVICES PROVIDED BY THE ASSESSEE SOCIETY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INCOM E ARISING OUT OF ACTIVITY OF PROVIDING LOANS TO ITS MEMBERS QUALIFIES FOR DEDUCTION AS PER THE PROVISIONS OF SECTION 80P(2) OF THE ACT. HOWEVER, THE ASSESSEE HAD ALSO CLAIMED DEDUCTION ON THE OTHER PARTS OF INCOME SUCH AS INTEREST INCOME ON INVESTMENT AND OTHER RECEIPTS FROM DIFFERENT SERVICES PROVIDED BY THE ASSESSEE SOCIETY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID INCOME DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT AND CONSEQUENTLY, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESS EE . OUT OF TOTAL RECEIPTS OF RS. 1,57,98,465/ - , THE RECEIPTS ON ACCOUNT OF PROVIDING CREDIT FACILITIES TO THE MEMBERS WERE RS.1,11,85,582/ - ONLY. FURTHER, THE ASSESSEE HAD CREDITED SUM OF RS.4,86,506/ - ON ACCOUNT OF RECEIPTS FROM OTHER ACTIVITIES AND SERVICES AND INTEREST INCOME EARNED AND RECEIVABLE ON DEPOSITS OF RS. 41,26,377/ - . THE ASSESSEE HAD CLAIMED THE DEDUCTION ON BOTH THESE RECEIPTS UNDER SECTION 80P(2) OF THE ACT. THE ASSESSING OFFICER WAS O F THE VIEW THAT THE INTEREST INCOME WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES ON WHICH, THE ASSESSEE WAS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2) OF THE ACT. THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT ALL THE RECEIPTS WERE ATTRIBUTABLE TO THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS ATTRIBUTABLE TO ITS BUSINESS ACTIVITY AND HENCE, ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT. FURTHER, OBJECTION OF THE ASSESSING OFFICER WAS THAT IN VIEW OF THE RECE NT DECISION OF HONBLE APEX COURT IN TO T GAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283 (SC) , THE APEX COURT HAD HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON THE SURPLUS FUND OF THE MEMBERS COULD NOT BE CONSIDERED AS BU SINESS INCOME AND THEREFORE, DEDUCTION UNDER SECTION 80P OF THE ACT, WAS NOT ALLOWABLE. THE ASSESSING OFFICER THUS, HELD THAT THE INCOME OF RS. 37,16,147/ - WAS NEITHER BUSINESS INCOME EARNED IN THE COURSE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS NOR FROM OUT OF INVESTMENT WITH OTHER CO - 6 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. OPERATIVE SOCIETIES OR FROM THE BUSINESS OF BANKING AND THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE WAS NOT CARRYING ON THE BUSINESS OF BANKING AS NO PERMISSION WAS RECEIVED FROM RESERVE BANK OF INDIA. APPLYING THE PROVISIONS OF SECTION 80P(2)(A)(I) OF THE ACT , THE INTEREST EARNED / CREDITED AT RS. 37,16,147/ - WAS NOT ALLOWED AS DEDUCTION AND WAS TAXED IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER COMPUTED THE INCOME OF THE SOCIETY AT LOSS OF RS. 18,02,998/ - BY RECASTING PROFIT & LOSS ACCOUNT. 8. IN RESPECT OF OTHER RECEIPT OF RS.4,86,506/ - , THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE THAT PART OF INCOME HAD DIRECT OR INDIRECT NEXUS WITH THE ACTIVITY OF PROVIDING CREDIT FACILITY TO MEMBERS, HENCE, BALANCE SUM OF RS. 2,12,936/ - WAS ADDED AS INCOME OF THE ASSESSEE, AGAINST WHICH THE ASSESSING OFFICER ALLOWED PROPORTIONATE EXPENSES OF RS. 1,87,150/ - AND ADDED SUM OF RS.25,786/ - . 9. ANOTHER ADDITION MADE BY THE ASSESSING OFFICER WAS ON ACCOUNT OF DEBIT OF RS.5 LAKHS AS PROVISION FOR BAD DEBTS AND RS.5 LAKHS AS PROVISION FOR BUILDING FUND, WHICH WERE NOT ALLOWABLE EXPENSES. THE ASSESSING OFFICER ACCORDINGLY, COMPUTED THE INCOME FROM OTHER SOURCES AT RS. 37,16,147/ - AND ADDED PROPORTIONATE INCOME FROM OTHER SERVICES AT RS. 25,786/ - AND ASSESSED THE TOTAL INCOME AT RS. 37,41,933/ - AS AGAINST THE INCOME WHICH WAS TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT, THE SAME WAS DETERMINED AT LOSS OF RS.18,02,998 / - TO WHICH THE DISALLOWANCE OF RS.10 LAKHS WAS ADDED AND THE BALANCE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT WAS WORKED OUT AT LOSS OF RS. 8,28,784/ - . 7 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. 10. THE CIT(A) NOTED THAT THE ASSESSEE WAS A CO - OPERATIVE CREDIT SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS. FROM THE DETAILS OF THE MODUS OPERANDI OF THE ASSESSEE SOCIETY, THE CIT(A) FURTHER NOTED THAT THE SOCIETY ACCEPTS DEPOSITS FROM ITS MEMBERS, WHICH IN TURN, WERE USED MAINLY FOR LENDING TO THE MEMBERS. THE INTEREST INCOME EARNED ON SUCH LENDING WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE CIT(A) FURTHER OBSERVED THAT IN TERMS OF MAHARASHTRA CO - OPERATIVE SOCIE TIES ACT, 1960 , THE ASSESSEE HAD TO KEEP ABOUT 20 TO 30% OF ITS DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS ON WHICH IT EARNS INTEREST INCOME. DURING THE YEAR UNDER CONSIDERATION, SUM OF RS. 37,16,146/ - WAS EARNED AS INTEREST ON SUCH DEPOSITS AND WHICH WAS CLAIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE ASSESSING OFFICER HAD HELD THAT SUCH INTEREST TO BE INCOME FROM OTHER SOURCES AND HENCE, THE DEDUCTION WAS DENIED. THE CIT(A) HELD THAT SINCE THE ASSESSEE WAS MAKING THE INVESTMENT IN DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS FOR THE PURPOSE OF EARNING INTEREST INCOME AS IT WAS MANDATORILY REQUIRED TO MAINTAIN SOME PERCENTAGE OF DEPOSITS AS INVESTMENTS WITH OTHER FINANCIA L INSTITUTIONS, THEREFORE, THE INTEREST INCOME EARNED ON SUCH INVESTMENTS IS INCIDENTAL TO CARRYING ON THE BUSINESS ACTIVITY AND THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . WITH REGARD TO THE ASSESSING OFFICERS RELIANCE ON THE HONBLE APEX COURT JUDGMENT IN THE CASE OF TORGARS CO - OPERATIVE SALE SOCIETY VS. ITO (SUPRA) , THE CIT(A) NOTED THAT THE FACTS OF THE CASE WERE DIFFERENT FROM THE ASSESSEES CASE, WHEREIN THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MARKETIN G OF AGRICULTURAL PRODUCE OF ITS MEMBERS AND THE SALE PROCEEDS WERE KEPT AS DEPOSITS BY THE SOCIETY AND THE INTEREST INCOME EARNED ON SUCH DEPOSITS WAS HELD BY THE HONBLE SUPREME COURT AS INCOME FROM OTHER SOURCES. RELIANCE WAS PLACED ON THE DECISION OF PUNE BENCH OF TRIBUN AL IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. IN ITA NO.1336/PN/2011 , ORDER 8 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. DATED 31.07.2013 WHOSE FACTS WERE SIMILAR TO THE FACTS OF THE ASSESSEE , UNDER WHICH THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT WAS ALLOWED NOT ONLY ON INTEREST INCOME BUT ALSO ON INCOME FROM MUTUAL FUND GAINS. THE CIT(A) FURTHER NOTED THAT THE PUNE BENCH OF TRIBUNAL IN THE SAID CASE HAD BROUGHT OUT THE DISTINGUISHING FACTS OF THAT SOCIETY FROM TOTGARS CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND SINCE THE FACTS OF THE CASE IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) WERE SIMILAR TO THE FACTS OF THE ASSESSEE, DEDUCTION UNDER SECTION 80P WAS ALLOWED TO THE ASSESSEE ON THE INTEREST INCOME OF RS.37,16,146/ - . THE ALTERNATE PLEA OF THE ASSESSEE WAS REJECTED. FURTHER, ON THE NET RECEIPTS OF RS. 25,786/ - ALSO, THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT WAS ALLOWED TO THE ASSESSEE. HOWEVER, THE DISALLOWANCE OF RS.10 LAKHS BEING THE PROVISION FOR BUILDING FUND WAS CONFIRMED BY THE CIT(A). 11. THE PRESENT APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME OF RS.37,16,147/ - AND ON OTHER PROFIT OF RS.25,786/ - . 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE IS A CREDIT CO - OPERATIVE SOCIETY . OUR ATTENTION WAS DRAWN TO THE DETAILS OF INVESTMENT PLACED AT PAGE 56 OF THE PAPER BOOK AND THE LIST OF FIXED DEPOSITS AT PAGE 57 OF THE PAPER BOOK WITH COPIES OF FDS WITH CONTINUING PAGES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE DETAILS OF INTEREST ON INVESTMENT IS PLAC ED AT PAGE 32 OF THE PAPER BOOK, IN WHICH DIVIDEND OF RS.87, 0 87/ - WAS RECEIVED FROM UTI MUTUAL FUNDS AND RS.88,519/ - FROM SUNDARAM FINANCE AND REST OF THE INTEREST WAS ON FDS WHICH TOTAL LED TO RS. 37,16,146/ - . THE FIRST PLEA RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE SAID INTEREST INCOME OF RS. 37,16,146/ - WAS EARNED DURING THE COURSE OF 9 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. BUSINESS ACTIVITY AND HENCE, THE SAME WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE SECOND PLEA RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT IF IN CASE THE SAID INCOME IS TO BE INCLUDED IN THE HANDS OF THE ASSESSEE, THEN CORRESPONDING EXPENDITURE IS TO BE ALLOWED AGAINST THE SAID RECEIPTS. HE FURTHER STRESSED THAT THE LOAN RECEIVED FROM THE MEMBERS WAS PARTLY GIVEN ON CREDIT AND PARTLY INVESTED IN FDS AND HENCE, THE BUSINESS ELEMENT IN THE TRANSACTION. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE AFTER THE FACTUAL ASPECTS WERE BROUGHT TO OUR NOTICE, POINTED OUT THAT THE PROVISIONS OF SECTION 80P(4) OF THE ACT WERE OVERRIDING PROVISIONS AND THE SAID PROVISIONS WERE APPLICABLE TO PRIMARY AG RICULTURAL CREDIT SOCIETIES , PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS. THE CASE LAWS RELIED UPON BY THE ASSESSEE WERE NOT RELEVANT , AS PER THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , AS THE SAME WERE PRIOR TO 01.04.2007 AND THE AMENDMENT BY WAY OF SECTION 80P ( 4 ) WAS INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01.04.2007 , T HE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDER OF ASSESSING OFFICER AND POINTED OUT THAT THE ORDER OF CIT(A) NEEDS TO BE REVERSED. 14. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REPLY, POINTED OUT THAT THE PROVISIONS OF SECTION 80P(4) OF THE ACT WERE NOT APPLICABLE AS IT WAS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON THE BUSINESS OF BANKING. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN ACIT VS. M/S. JANATA GRAHAK MADHYAVARTI SAH. SANGH MARYADIT IN ITA NO.573/PN/2013 , RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 27.11.2013 . FURTHER, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAD PLACED RELIANCE IN THE DECISION OF 10 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. TOTGAR CO - OPERATIVE S ALE SOCIETY LTD. VS. ITO (SUPRA), WHEREAS THE HONBLE APEX COURT IN THE SAID DECISION ITSELF HAS NOTED THE FACT THAT THE S URPLUS ANY REQUIRED FOR BUSINESS WAS KEPT IN FDS, WHEREAS IN THE CASE OF THE ASSESSEE, IT WAS MANDATORY FOR THE ASSESSEES SOCIETY TO PLACE ITS FUNDS WITH OTHER CO - OPERATIVE SOCIETIES IN ORDER TO EARN INTEREST INCOME AND THE SAID LENDING OF THE FUNDS W ERE NOT SURPLUS FUNDS . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. VS. ITO HAD REFERRED TO THE DECISION OF HONBLE APEX COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND DISTINGUISHED THE SAME. RELIANCE WAS PLACED ON THE DECISION OF PUNE BENCH OF TRIBUNA L IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) AND THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN GUTTIGEDARARA CREDIT CO - OPERATIVE SOCIETY LTD. VS. ITO (2015) 377 ITR 464 (KARN) . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE FURTHER POINTED OUT THAT VIDE CROSS OBJECTIONS, THE ASSESSEE HAS RAISED THE ISSUE THAT IN CASE, THE INTEREST INCOME OF RS. 37,16,146/ - WAS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80P OF THE ACT, THEN THE ENTIRE INTEREST INCOME COULD NOT BE TAXED AS INCOME OF THE ASSESSEE AND ONLY NET INCOME AFTER DEDUCTING PROPORTIONATE EXPENDITURE SHOULD BE TAXED AS INCOME OF THE ASSESSEE. IN THIS REG ARD, THE ASSESSEE FURNISHED CALCULATION OF THE PROPORTIONATE EXPENDITURE ADJUSTABLE AGAINST THE INTEREST INCOME. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE THIRD ASPECT OF THE ISSUE IS IN CASE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT , THEN THE SAID INTEREST RECEIVED FROM CO - OPERATIVE BANKS WAS ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT. HE FURTHER POINTED OUT THAT THE SAID ISSUE WAS RAISED BEFORE THE CIT(A) , BUT THE SAME WAS NOT DECIDED BY THE CIT(A) AS THE ASSESSEE WAS HELD TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . HE FAIRLY POINTED 11 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. OUT THAT THE INTEREST DERIVED FROM COOPERATIVE SOCIETIES EXCEPT FOR THE DIVIDENDS FROM UTI MUTUAL F UNDS AND SUNDARAM FINANCE, WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION S OF PUNE BENCH OF TRIBUNAL IN ACIT VS. M/S. BAJAJ AUTO LTD. IN ITA NO.1047/PN/2012, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 26.08.2013 AND ITO VS. JA N KALYAN NAGRI SAHAKARI PAT SANSTHA LTD. (2012) 24 TAXMANN.COM 127 (PUNE) . 15. THE LEARNED DEPARTM ENTAL REPRESENTATIVE FOR THE REVENUE IN REJOINDER POINTED OUT THAT IN THE CASE BEFORE THE HONBLE HIGH COURT OF KARNATAKA (SUPRA) AMOUNTS INVESTED WERE NOT DUE TO ANY MEMBER AND WHICH WAS NOT THE LIABILITY OF THE ASSESSEE AND HENCE, RECEIPTS WERE HELD TO B E BUSINESS INCOME. IN RESPECT OF THE INTEREST RECEIVED ON SAVINGS ACCOUNT, IT WAS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE PROVISIONS OF SECTION 80P(2)(D) OF THE ACT WERE NOT APPLICABLE AS THE SAME WERE NOT INVESTMEN T. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US I S A CREDIT CO - OPERATIVE SOCIETY, WHICH IS ACCEPTING DEPOSITS FROM ITS MEMBERS AND USING THE SAME FOR GIVING LOANS TO ITS MEMBERS. IN ADDITION, THE ASSESSEE IS ALSO MAKING INVESTMENTS WITH OTHER CO - OPERATIVE SOCIETIES, WHICH IT CLAIMS TO HAVE MADE AS PER T HE MANDATE OF MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960 . THE ISSUE ARISING BEFORE US IS WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE ON SUCH INVESTMENTS IS LIABLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT IN THE HANDS OF THE ASSESSEE. THE AS SESSING OFFICER RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) WAS OF THE VIEW THAT THE SAID INTEREST EARNED BY THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE ALTERNATE PLEA OF THE ASSESSEE FOR CLAIMING THE DEDUCTION UNDER SECTION 80P(2) OF THE ACT WAS RAISED 12 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. BEFORE THE CIT(A), WHO DID NOT ADJUDICATE THE SAME AS HE WAS OF THE VIEW THAT THE ASSESSEE WAS ELIGIBLE TO CLAIM THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . BEFORE US, THE THIRD CONTENTION HAS BEEN RAISED THAT IN CASE, NO DEDUCTION IS AVAILABLE TO THE ASSESSEE, THEN AT BEST ONLY THE NET INCOME ON SUCH RECEIPTS IS TO BE ADDED IN THE HANDS OF THE ASSESSEE, FOR WHICH THE ASSESSEE HAS PLA CED THE CALCULATION SHEET ON RECORD. THE CASE OF THE REVENUE ON THE OTHER HAND, IS THAT THE DECISION OF THE HONBLE APEX COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) IS CLEARLY APPLICABLE. IN THE ALTERNATE, RELIANCE WAS PLACED ON NEWLY INSERTED SECTION 80P(4) OF THE ACT , WHICH WAS INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01.04.2007 AND IT WAS POINTED OUT THAT THE SAID SECTION HAD OVERRIDING PROVISIONS AND HENCE, THE SAME W AS APPLICABLE. 17. IN ORDER TO ADJUDICATE THE ISSUE, FIRST REFERENCE IS MADE TO THE DECISION OF HONBLE SUPREME COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) . IN THE FACTS OF THE SAID CASE , THE ASSESSEE BEFORE THE HONBLE APEX COURT WAS A CO - OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO THE ME MBERS OR MARK ET ING AGRICULTURAL PRODUCE OF ITS MEMBERS. THE ASSESSEE HAD PARKED ITS FUNDS IN SHORT TERM BANK DEPOSITS AND SECURITIES AND THE INTEREST EARNED ON THE SAME WAS CLAIMED AS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE REVENUE AUTHORIT IES HELD THAT THE SAME WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THESE WERE NOT REQUIRED IMMEDIATELY FOR BU SINESS PURPOSES AND CONSEQUENTLY, INTEREST RECEIVED BY THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . FURTHER, THE CONTENTION OF THE ASSESSEE BEFORE THE COURT WAS THAT UNDER REGULATIONS 23 AND 28 R.W.S. 57 AND 58 OF THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 , A STATUTORY OBLIGATION WAS IMPOSED ON CO - OPERATIVE CREDIT SOCIETIES TO INVEST ITS 13 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. SURPLUS FUNDS IN SPECIFIED SECURITIES AND IN VIEW OF THE AFORESAID STATUTORY OBLIGATIONS, THE ABOVE MENTIONED INVESTMENT WAS MADE BY THE ASSESSEE AND THE SAME WAS IN T HE NATURE OF ITS BUSINESS ACTIVITY. THE SAID INTEREST INCOME WAS CLAIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT , IRRESPECTIVE OF THE SOURCE OR HEAD UNDER WHICH SUCH INCOME WOULD FALL. THE HONBLE APEX COURT NOTED THAT THE INTEREST INCOME ARISING ON SURPLUS INVESTMENT IN SHORT TERM DEPOSITS AND SECURITIES, WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSE, WAS TO BE TAXED UNDER SECTION 56 OF THE ACT. THE HONBLE APEX COURT FURTHER NOTED THAT THE ASSESSEE MARKETS THE P RODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT AND THE TAX TREATMENT OF SUCH AMOUNT WAS THE ISSUE BEFORE THEM. THE HONBLE APEX COURT HELD THAT WHERE THE INTEREST ON DEPOSITS / SECURITIES , WHERE THE FUNDS WERE NOT IMMEDIATELY REQUI RED FOR BUSINESS PURPOSES, WAS INVESTED IN SPECIFIED SECURITIES, WOULD BE TAXABLE AS INCOME UNDER SECTION 56 OF THE ACT. IT FURTHER HELD THAT WHERE THE ASSESSEE SOCIETY REGULARLY INVESTS ITS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, INTEREST ON SUCH INVESTMENT COULD NOT FALL WITHIN THE EXPRESSION OF PROFITS AND GAINS OF BUSINESS AND THE SAME COULD NOT BE HELD TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY I.E. CARRYING ON OF BUSINES S OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING THE AGRICULTURAL PRODUCE OF ITS MEMBERS. THE HONBLE APEX COURT FURTHER REITERATED THAT WHERE THE ASSESSEE MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS AND IT RETAINS THE SALE PROCEEDS IN MAN Y CASES AND WHERE THE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM THE PRODUCE WAS B OUGHT, WAS INVESTED IN SHORT TERM DEPOSITS / SECURITIES, THE SAID AMOUNT WAS LIABILITY OF THE ASSESSEE AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITI ES SIDE, THEREFORE, TO THAT EXTENT, THE HONBLE SUPREME COURT HELD THAT SUCH INTEREST INCOME COULD NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN 80P(2)(A)(I) OR 80P(3) OF THE ACT . IN 14 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. VIEW THEREOF, THE HONBLE SUPREME COURT UPHELD THE ORDER OF ASSESSING OFFICER IN TAXING THE S AID AMOUNT UNDER SECTION 56 OF THE ACT. THE ALTERNATE PLEA O F THE ASSESSEE THAT EVEN IF THE SAID INTEREST INCOME WAS HELD TO BE COVERED UNDER SECTION 56 OF THE ACT, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)( A)(I) OF THE ACT , WAS REJECTED. 1 8 . IN THE FACTS OF THE CASE BEFORE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. VS. ITO (SUPRA) , THE ASSESSEE CO - OPERATIVE SOCIETY WAS ENGAGED IN THE ACTIVITY OF CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND IT HAD EARNED INTEREST IN COME ON ITS DEPOSITS. ANOTHER FACT NOTED BY THE HONBLE HIGH COURT OF KARNATAKA WAS THAT THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT THE AMOUNT DUE TO ANY MEMBERS AND IT WAS NOT THE LIABILITY OF THE ASSESSEE . IN FACT, THE SAID AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS, WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS AS THERE WERE NO TAKERS AND THE ASSESSEE IN SUCH CIRCUMSTANCES, DEPOSITED THE MONEY IN BANK SO AS TO EARN INTEREST. THE HONBLE HIGH COURT OF KARNATAKA IN SUCH CIRCUMSTANCES HELD THAT THE INTEREST INCOME WAS ATTRIBUTABLE TO CARRYING ON OF BUSINESS OF BANKING AND THEREFORE, IT WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT , THEY TOOK NOTE OF INSERTION OF SECTION 80P(4) OF THE ACT, WHICH WAS APPLIED BY THE ASSESSING OFFICER TO DENY THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE HONBLE HIGH COURT OF KARNATAKA REFERRED TO THE JUDGMENT OF HONBLE APEX COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND POINTED OUT THAT IN THE FACTS OF THE SAID CASE, THE AMOUNT WHICH WAS RETAINED BY THE ASSESSEE WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON LIABILITIES SIDE. WHERE THE INTEREST INCOME WAS EARNED ON SUCH FUNDS, THEN THE SAME WAS HELD BY THE HONBLE APEX 15 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. COURT TO BE TREATED UNDER SECTION 56 OF THE ACT. HOWEVER, THE DISTINCTION WAS DRAWN BY THE HONBLE HIGH COURT OF KARNATAKA IN PARA 10 AND IT WAS POINTED OUT THAT IN THE CASE BEFORE THEM, THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN THE INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBER, IT WAS NOT THE LIABILITY AND IT WAS NOT SHOWN AS LIABILITY IN THEIR ACC OUNTS. IN FACT, THE AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS AS THERE WERE NO TAKERS AND HENCE, WAS DEPOSITED IN THE BANKS SO AS TO EARN INTEREST, SUCH INTEREST INCOM E EARNED BY THE ASSESSEE WAS HELD TO BE ATTRIBUTABLE TO CARRYING ON THE BUSINESS AND THEREFORE, SAME WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. 1 9 . ANOTHER DECISION REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS GUTTIGEDARARA CREDIT CO - OPERATIVE SOCIETY LTD. VS. ITO (SUPRA), WHEREIN THE ASSESSEE WAS A CO - OPERATIVE SOCIETY ENGAGED IN THE ACTIVITY OF CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSING OFFICER IN VIEW OF INSERTION OF SECTION 80P(4) OF THE ACT, HAD DECLINED TO EXTEND THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE INTEREST INCOME EARNED ON SHORT TERM DEPOSITS AND FROM SAVING BANKS ACCOUNT W AS HELD LIABLE TO INCOME TAX. THE HON BLE HIGH COURT HELD THAT WHERE THE ASSESSEE SOCIETY WAS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON ANY OTHER BUSINESS, THEN THE SURPLUS FUNDS WHICH IT HAD EARNED AS PROFITS OF ITS BUSINESS WHEN TEMPORARILY NOT REQUIRED WERE INVESTED IN BANKS TO EARN INTEREST WAS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE, LIABLE TO BE DEDUCTED UNDER SECTION 80P(1) OF THE ACT. 16 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. 20. FURTHER, THE PUNE BENCH OF TRIBUNAL IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) HAD LAID DOWN THE SIMILAR PROPOSITION AS BY THE HONBLE HIGH COURT OF KARNATAKA. 2 1. THE ISSUE ARISING BEFORE US IS WHETHER THE INTEREST EARNED BY THE ASSESSEE ON ITS INVESTMENTS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS MADE SEVERAL PROPOSITIONS BEFORE US. THE FIRST AND FOREMOST PROPOSITION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS THAT THE INTEREST INCOME IS ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . HOWEVER, WITHOUT PREJUDICE TO THE SAME, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E MADE AN ALTERNATE PROPOSITION THAT IN CASE THE INTEREST EARNED BY THE ASSESSEE IS HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOURCES, THEN THE PROPORTIONATE EXPENDITURE RELATABLE TO SUCH INVESTMENTS IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE AND THEN ONLY BALANCE INTEREST INCOME IS TO BE TAXED AS INCOME FROM OTHER SOURCES. ANOTHER PROPOSITION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT WHERE THE INVESTMENTS WERE MADE WITH OTHER CO - OPERATIVE SOCIETIES, THEN THE ASSESSEE WA S ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT AND NO AMOUNT WAS ASSESSED IN THE HANDS OF THE ASSESSEE EXCEPT THE DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARAM FINANCE OF RS. 87,087/ - AND RS.88,519/ - . THE ASSESSEE HAS PLAC ED ON RECORD ITS BALANCE SHEET ALONG WITH PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AT PAGES 22 TO 31 OF THE PAPER BOOK WITH ITS ENGLISH TRANSACTION. THE PERUSAL OF THE BALANCE SHEET AS ON 31.03.2010 REFLECTS TH E ASSETS IN THE FORM OF BANK BALANCE, CASH, INVESTMENTS AND OTHER DEPOSITS ALONG WITH THE LOAN ADVANCED TO MEMBERS, PROPERTY HELD BY THE ASSESSEE AND INTEREST RECEIVABLE ON INVESTMENTS AND OUTSTANDING LOAN. ON THE 17 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. LIABILITIES SIDE, THE ASSESSEE HAS DECLARE D SHARE CAPITAL, SHARE CAPITAL FUND OF THE ASSESSEE SOCIETY, THE DEPOSITS RECEIVED FROM ITS MEMBERS AND OTHER DEPOSITS AND THEREAFTER, PROVISION OF RS. 41,62,699/ - . THE BREAK - UP OF THE INVESTMENT OF RS.5.55 CRORES IS PROVIDED BY THE ASSESSEE AT PAGE 56 OF THE PAPER BOOK . THE BREAK - UP OF THE INVESTMENT IS IN DIFFERENT FDS WITH CO - OPERATIVE SOCIETIES TOTALLING TO RS.5.47 CRORES AND THE OTHER INVESTMENT IN UTI MUTUAL FUNDS, SUNDARAM FINANCE, GRATUITY FUND AND SHARES TOTALLING RS.7,48,216/ - , TOTALLING RS.5.55 CRORES. THE ASSESSEE HAS FURTHER FURNISHED THE BREAK - UP OF FDS WITH DIFFERENT CO - OPERATIVE BANKS AT PAGES 57 TO 68 OF THE PAPER BOOK WITH SAMPLE COPIES OF FDS AT PAGES 69 TO 75 OF THE PAPER BOOK. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OUT OF LOAN RECEIVED FROM ITS MEMBERS ITSELF . T HE SURPLUS AMOUNT WHICH WAS ON ACCOUNT OF AMOUNT RECEIVED FROM ITS MEMBERS ONLY, WHICH HAD NOT BEEN ADV ANCED TO ANY OF THE MEMBERS WAS INVESTED IN THE BANKS, AGAINST WHICH THE SAID INVESTMENT WAS MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, WHICH IN TURN, WERE AMOUNTS ADVANCED BY THE MEMBERS ITSELF. THE SAID PARKING OF FUNDS WITH THE CO - OPERATIVE BANKS WAS CLAIMED BY THE ASSESSEE TO BE IN THE NATURE OF ITS BUSINESS ACTIVITY AS IT WAS THE REQUIREMENT OF MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TOTAL DEPOSITS ARE TO BE PARKED IN THE INVESTMENTS WITH CO - OPERATIVE BANKS. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AMOUNT INVESTED BY THE ASSESSEE WAS OUT OF ANY LIABILITIES DUE BY THE ASSESSEE. IN THE ABSENCE OF THE SAME AND FOLLOWING THE SAME P ARITY OF REASONING LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. VS. ITO (SUPRA) AND THE FACTS OF THE PRESENT CASE BEING AT VARIANCE TO THE FACTS BEFORE THE HONBLE SUPREME COURT IN TOTGARS CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) , WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . IN THE 18 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. ALTERNATE, WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT AT BEST THE INCOME WHICH CAN BE ASSESSED IN THE HANDS OF ASSESSEE IS THE NET INCOME AND NOT THE GROSS INCOME AS PROPORTIONATE EXPENDITURE INCURRED IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. HOWEVER, WE ARE NOT ADJUDICATING THIS ISSUE SINCE WE HAVE ALREADY HELD THE ASSESSEE TO BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . IN VIEW THEREOF, WE ALSO DO NOT ADJUDICATE THE SECOND ALTERNATE PLEA RAISED BY THE ASSESSEE THAT IT IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT . HOWEVER, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT RELATING TO DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARAM FINANCE OF RS.87,087/ - AND RS.88,519/ - , WHICH ARE TO BE INCLUD ED AS INCOME FROM OTHER SOURCES , ON WHICH THE ASSESSEE IS ENTITLED TO PROPORTIONATE EXPENDITURE. SIMILARLY, THE PROFIT OF RS. 25,786/ - FROM O THER ACTIVITIES AND SERVICES IS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . ACCORDINGLY, WE PARTLY UPHOLD THE ORDER OF CIT(A). IN VIEW THEREOF, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 2 2 . THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE THUS DISMISSED BEING INFRUCTUOUS AS THE INCOME EARNED BY THE ASSESSEE IS HELD TO BE EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE ADDITIONAL GROUNDS OF OBJECTIONS ARE ALSO DISMISSED AS BEING INFRUCTUOUS IN VIEW OF OUR PARTLY ALLOWING THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 2 3 . THE ISSUE ARISING IN ITA NO.898/PN/2014 IS IDENTICAL TO THE ISSUE IN ITA NO.900/PN/2014. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY A DMITTED THAT OUT OF INTEREST ON BANK DEPOSITS DECLARED AT RS.61,01,910/ - , THE INTEREST ON RESERVE FUND TOTALLING RS.4,15,751/ - IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . ACCORDINGLY, IN VIEW OF THE ADMISSION OF THE LEARNED 19 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WE HOLD THAT THE BALANCE INTEREST INCOME EARNED BY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION 80P(2) OF THE ACT. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IN THIS REGARD, IS PARTLY ALLOWED. 2 4 . THE GROUND O F APPEAL NO.2 RAISED BY THE REVENUE IS AGAINST THE RELIEF ALLOWED BY THE CIT(A) IN RESPECT OF THE PROFIT FROM OTHER ACTIVITIES AND SERVICES. THE ASSESSEE, IN ADDITION TO THE INTEREST DECLARED AT RS. 61,01,909/ - HAD ALSO CREDITED SUM OF RS. 50,21,759/ - ON AC COUNT OF RECEIPTS FROM OTHER ACTIVITIES AND SERVICES, ON WHICH IT HAD CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THE DETAILS OF VARIOUS RECEIPTS AND THEIR NATURE ARE REPRODUCED IN THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE CIT(A), WHICH ARE AVAILABLE AT PAGE S 5 TO 8 OF THE APPELLATE ORDER. THEREAFTER, THE ASSESSEE HAS CLAIMED THAT CERTAIN RECEIPTS ON ACCOUNT OF SERVICES WERE HAVING DIRECT NEXUS WITH THE ACTIVITY OF THE SOCIETY, THE SAID RECEIPTS ARE TOTALLED TO RS. 44,21,523/ - , AS PER TH E TABULATED DETAILS AVAILABLE AT PAGE 9 OF THE APPELLATE ORDER. IN RESPECT OF BALANCE ITEMS, THE ASSESSEE CLAIMED THAT THE SAME WERE ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE I.E. THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO THE MEMBERS AND HENCE, WE RE NOT IN THE NATURE OF INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER HELD THAT THE INCOME ON THESE RECEIPTS WAS TO BE BROUGHT TO TAX, HOWEVER , PROPORTIONATE EXPENSES RELATABLE TO THE RECEIPTS WERE ALLOWED AND THE BALANCE PROFITS FROM THE OTHER RECEIPT S WERE ARRIVED AT RS. 7,20,302/ - , WHICH WAS ADDED AS INCOME OF THE ASSESSEE. 2 5 . THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING THAT THE RECEIPTS HAD DIRECT NEXUS WITH THE ASSESSEES BUSINESS OF BANKING / PROVIDING CREDIT FACILITIES TO ITS MEMBERS EXCEPT FOR THE RECEIPT OF RS.32,536/ - RECEIVED AS INTEREST ON DEPOSITS FROM MSEB, RS.4,65,343/ - RECEIVED AS COMMISSION FROM MSEB AND RS.2,017/ - SHOWN AS STATIONARY STOCK. THEREFORE, THE CIT(A) ON PROPORTIONATE BASIS 20 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. HELD THAT THE AMOUNT OF RS. 6,34,206/ - WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . 2 6 . THE PERUSAL OF THE DETAILS FILED OF RECEIPTS TOTALLING RS. 50,21,75 9 / - , OUT OF WHICH SOME DETAILS TOTALLING RS. 44,21,523/ - ARE TABULATED AT PAGE 9 OF THE CIT(A) S ORDER, IT REFLECTS THAT THE ASSESSEE HAS RECEIVED DIVIDEND OF RS. 160/ - . T HE ASSESSEE HAD RECEIVED INTEREST INCOME FROM SAVINGS ACCOUNT TOTALLING RS. 3,28,820/ - AND SERVICE CHARGES OF RS. 4,48,431/ - , CHEQUE RETURN CHARGES OF RS. 68,680/ - AND CHARGE AND DD COMMISSION OF RS. 93,131/ - , PROCESSING FEES OF RS.10,38,970/ - , LOAN FORM FEES OF RS.10,780/ - AND INTEREST RECEIVED ACCOUNT OF RS. 24,15,280/ - . AS AGAINST THE RECEIPT OF RS. 44,21,523/ - + OTHER RECEIPT FROM MSEB OF RS. 32,356/ - AND RS. 4,65,343/ - , TOTALLING RS. 50,21,759/ - , PROPORTIONATE EXPENDITURE RELATABLE TO SUCH RECEIPTS AT RS. 43,01,457/ - HAS BEEN ALLOWED BY THE ASSESSING OFFICER. THE CIT(A) ON THE OTHER HAND, HAD UPHELD THE ORDER OF ASSESSING OFFICER IN RESPECT OF INTEREST / COMMISSION FROM MSEB AND HAD WORKED OUT THE BALANCE RECEIPT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF T HE ACT AT RS.44,21,523/ - . THE PROPORTIONATE EXPENDITURE ON THE SAME WAS ALLOWED AND THE BALANCE PROFIT WAS DETERMINED AS RS. 6,34,206/ - BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . WE FIND NO MERIT IN THE AFORESAID ORDER OF CIT(A) IN VIEW OF THE NATURE OF RECEIPTS IN THE HANDS OF ASSESSEE BEING NOT COVERED BY THE PROVISIONS OF SECTION 80P(2)(A)(I) OF THE ACT . THE INTEREST FROM SAVINGS BANK ACCOUNT AND THE OTHER RECEIPTS ARE NOT E LIGIBLE FOR THE AFORESAID DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . ACCORDINGLY, WE REVERSE THE ORDER OF CIT(A) IN THIS REGARD AND ALLOW THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IN ITA NO.898/PN/2014. 27. THE ISSUE S RAISED IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE IN RELATION TO THE COMPUTATION OF DEDUCTION ON INTEREST INCOME OF RS. 61,01,909/ - . IN 21 ITA NO S . 89 8 & 900 /PN/20 1 4 CO NOS.32 AND 34/PN/2015 M/S. KUNDALIKA NAGARI SAH. PATSANSTHA MARYADIT & ANR. VIEW OF OUR ALLOWING THE CLAIM OF ASSESSEE IN RESPECT OF THE SAID INTEREST RECEIPT OF RS. 61,01,909/ - BEING ELIGI BLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT , THE GROUNDS OF CROSS OBJE CTIONS BECOME INFRUCTUOUS AND SAME ARE DISMISSED. SIMILARLY, ADDITIONAL GROUND OF CROSS OBJECTIONS RAISED BY THE ASSESSEE I.E. ALLOWING AN ALTERNATE DEDUCTION UNDER SECTION 80P (2)(D) OF THE ACT ON THE INTEREST RECEIPTS OF RS.61,01,909/ - IS ALSO DISMISSED AS INFRUCTUOUS IN VIEW OF OUR ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . 28. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JANUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH JANUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - I , THANE ; 4. / THE CIT - II , THANE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE